vk.com/id446425943
Changes to ratings
Mosenergo
We downgrade Mosenergo to HOLD (from Buy) and decrease our TP to RUB3.09 (from RUB3.62).
▪9M18 figures were close to our forecasts; however, we lower our FY18 estimates. Mosenergo’s 9M18 revenue rose 0.5% to RUB136bn (in line with our forecast of RUB136.2bn); adjusted EBITDA declined 8.5% to RUB29.2bn (1% above our forecast of RUB28.9bn), while net income fell almost 16.5% to RUB14bn (in line with our forecast). However, we have lowered our net income FY18 forecast from RUB19.9bn to RUB16.6bn mainly due to lowering our expectations regarding FY18 revenue (which decreased from RUB195.2bn to RUB192.3bn) due to softening our forecast for the FY18 heat market and for net finance income. We have also cut our adjusted EBITDA forecast for FY18 from RUB39.5bn to RUB36.7bn.
▪Dividend prospects declined as a result. Lowering our forecasts for FY18 and beyond put the average dividend yield over the next four years at 4.5% (based on a 25% payout ratio), which is unlikely to excite investors even if the ratio is hiked to 50%, which put the yield to below 10%.
▪We downgrade to HOLD and reduce our TP by 15% to RUB3.09. As a result of the updates outlined above, our TP decreased by almost 15% to RUB3.09. However, despite this we see the fundamental value in the company. We believe that the likely dividend yield in the short-to-medium terms (we forecast a dividend yield of just 5.1% for FY18, decreasing to 3.9% for FY19, and staying close to 4.7% for FY20 and FY21) is not enough to attract investors in the stock, thus we downgrade the stock to HOLD. Mosenergo’s stock has significantly underperformed the market in 2018 (a 24% drop YoY vs 9% growth in the MOEX Index). The company has a solid net cash position of RUB22.1bn, which is close to 27% of its current market cap. Moreover, we estimate its average FCF yield over the next two years will average close to 15%. Despite a RUB78bn investment programme (on our estimates), FCF yield should average 15% over 2022-2029E, which leaves the company well positioned to increase its dividend payout, in our view. However, we believe there is no clarity in communication of the company’s strategy to the market, and we believe the company’s own business plans are extremely conservative, which could limit its desire to rise dividends. As a result, we believe these positive features could only prevent a further slide in the company’s shares rather than reverse the trend.
Renaissance Capital
9 January 2019
Utilities
20
vk.com/id446425943
Renaissance Capital 9 January 2019
Utilities
RusHydro
We upgrade RusHydro to BUY (from Hold) but leave our TP unchanged at RUB0.77.
▪9M18 figures broadly in line with our forecast. RusHydro delivered solid 9M18 figures, with the bottom line in line with our forecast. We note that it was affected by very volatile charges for VTB forward contracts, as well as some impairment charges the company booked in 3Q18. However, as some commissioning in the Far East was moved to 2019, we believe the impairment charges in 4Q18 (that is when the most charges are being booked) are to be lower, while the main charges will move into next year. Thus, we expect a solid FY18 bottom line, which should result in a healthy dividend yield for FY18.
▪The main risk to our investment case is Zagorskaya PSP. The company promised to update investors on the Zagorskaya PSP project in 1Q19, which is likely to be crucial for the RusHydro investment case, in our view. RusHydro has spent close to RUB70bn already, which means that if the company cancels the project it has to impair it, which will erase the prospects for any dividends in 2019. On the other hand, if the decision goes ahead, we believe it will be taken positively by the market even if the capex for plant restoration is not currently included in the RusHydro investment programme. However, we believe that RusHydro is likely to announce the engineering works on ground reinforcement on the site next year, which means that the final decision will be delayed again till the results of such reinforcements are known.
▪We upgrade to BUY on recent share price weakness and healthy dividend yield. RusHydro shares have declined 35% YoY, significantly underperforming the broader MOEX Index, which advanced 9% YoY. The decline means the prospective dividend yield for RusHydro stock is above 11% for FY18, on our estimates, As the company delayed some commissioning of Far Eastern units till next year, which could imply lower impairment charges for FY18. We believe the dividend yield for FY18, though highly sensitive to possible impairment charges the company is likely to book in 4Q18, after recent share price fall becomes attractive. Moreover, as we see a decline in the yield for FY19 (to just 6.9% due to higher impairment charges in FY19) and further decline to 6.6% for FY20, we see the yield recovering to above 11% for FY21 and growing after that as impairment charges are to dwindle due to completion of major investment projects in the Far East. Moreover, the company now trades almost at its historical minimum, which likely means that any positive developments, like moving ahead with Zagorskaya PSP or approving the modernisation programme at the Far East (which could happen in the summer of 2019) with the same returns as for the rest of the country could drive the shares upwards, we believe. We believe that the main risk to our investment case is a delay in commissioning of the two remaining power plants in the Far East (Sovetskaya Gavan and Sakhalinskaya GRES-2) and likely exceeding capex for this plants relative to its business plans (according to the Auditing Chamber the Sovetskaya Gavan project could cost RUB33bn – RUB14.9bn more than initially planned, while Sahalinskay GRES project could costs up to RUB44bn – a RUB9.3bn more, which could result in additional PPE impairment charges write-offs.
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